Midterm Learning Celebration
– Labor Economics

October 29, 1998

*Please show your work
clearly in the space provided.
Difficult-to-read writing or
graphs will be marked incorrect. Be
sure to label all lines and axes on your graphs. If you use the back of a page, indicate that you have done so on
the front of the page. May your efforts
be truthfully revealed.*

1.) [3 points each] Give a brief
definition of the terms below.

*marginal product of labor*

* *

*law of diminishing returns*

* *

*monopsony*

* *

*compensating wage
differentials*

* *

2.) [12 points] Using at least
one graph, illustrate the effect of an effective minimum wage. If you want, practice this graph on the back
of the page. When you have it the way
you want it, draw a wonderfully clear rendition of it below.

*a.
*Who benefits from a minimum wage?

* *

* *

b.
Who
loses?

c.
What
happens to the unemployment rate?

*(Explain, and illustrate
your answers to a & b *

*on the graph)*

3.) [6 points] What are two of
the market imperfections that could result in multiple wages for the same work
(in violation of the perfect competition model)?

a)

b)

**Circle the one best answer
to the following questions [3 points each]:**

** **

4.) MRP is

a)
Marginal Return to Price

b)
Men in Republican Party

c)
the contribution to price made by reducing manufacturing.

d)
the contribution to revenues made by the last input hired.

e)
the contribution to profit made at the margin.

5.) Firms will hire fewer workers
as the result of

a)
An decrease in the wage rate.

b)
A decrease in the demand for the firm’s product.

c)
An increase in the marginal product of workers.

d)
An increased tariff on imported goods.

e)
An increase in the price of the firm’s product.

6.) The piecework system is in
the same general category of pay rate determination as

a) wage per hour.

b) sales commissions.

c) seniority increases.

d) salary per year.

e) cost of living adjustments.

7.) In El Salvador, teenaged
girls were paid how much for every $20 Gap shirt they sewed?

a)
$9

b)
$4

c)
$1

d)
46 cents

e)
12 cents

8.) [6 points] In what three ways can unions increase
wages?

a)

ii)

3)

9.) [6 points] If all firms have similar isoprofit
functions and workers are heterogeneous, how can we interpret the slope of a
line plotting wage/risk combinations for workers? Explain in words, and illustrate your answer with a graph.

10.) [6] List two characteristics of work at R. R. Donnely that could lead
to positive or negative compensating wage differentials.

a.

b.

11.) [12 points] Using at least one graph, describe as
precisely as you can how a firm decides how many workers to hire.

12.) [12] a. What two decision rules can be used to
determine whether an investment in human capital is advisable?

i.

ii.

b.
Suppose
the market interest rate is .10. If you
had the opportunity to earn 100 this period and 105 next period, OR invest 50
in human capital this period and earn 300 next period, would you
invest?______ What is your internal
rate of return? ______

13.) [6] The materials Dr. Axtell
distributed included “Five simple steps everyone can take” to stop
sweatshops. What are two of then?

a.

b.

14.) [6] Name two theories of
distributive justice and briefly state their distributive “rule.”

a.

b.

15.) [4] From our research on
corporate labor practices (your own or that reported by your classmates), list
two labor-related programs that seemed beneficial to the companies, and two
that perhaps should be eliminated.

Beneficial Detrimental

a.
a.

b. b.